taxes types, methods & budgeting process section 4 MCQ Questions & Answers Detailed Explanation

Answer: (d)

When government incurs a fiscal deficit, then it spends more on the economy resulting in an increase in total/aggregate demand. But if total supply also increases, then inflation may not increase. So, the government’s fiscal deficit will necessarily increase aggregate demand but may not increase effective demand. So, (i) the statement is true.

When the economic capacity is fully (100%) utilized and the government spends more than demand increases in the economy but supply may not immediately increase and the companies will have to set up new capacity which may increase cost, resulting in inflation.

But if the economic capacity is underutilized, because of less demand and then the government spends more then the increase in aggregate demand will be met by increased supply, and there may not be inflation.

So, fiscal deficit may or may not cause inflation.

Answer: (b)

If the price of a product increased from Rs. 30 to Rs. 40 i.e. an increase of Rs. 10. For a poor person earning Rs. 1000, it is 1% tax, but for a rich person earning Rs. 1,00,000, it is 0.01% tax.

So, as a percentage of his income, a poor person is paying tax 1% but the rich person is paying tax only 0.01%. Hence its regressive (tax % is less for rich people and more for poor people)

Answer: (c)

Answer: (d)

Answer: (c)

When government incurs a fiscal deficit, the expenditure leads to an increase in total demand in the economy.

RBI is not allowed to lend to Government for the long term fiscal deficit bonds as per the FRBM Act 2003.

Answer: (c)

The “Outcome Budget” reflects the endeavour of the Government to convert "Outlays" into "Outcomes" by planning expenditure, fixing appropriate targets and quantifying deliverables of each scheme.

The “Outcome Budget” is an effort of the Government to be transparent and accountable to the people. The outcome budget is presented in the parliament.